The AT&T–Time Warner Shocker

The news last Thursday that the Department of Justice had decided to appeal the June 12 decision to allow
AT&T
(ticker: T) to merge with Time Warner sent AT&T shares skidding some 1.7% on Friday.

The possibility that the government would suddenly reverse an $81 billion merger was both head-scratching and a little shocking. But investors shouldn’t sweat this one too much—and not just because AT&T CEO Randall Stephenson said not to worry.

Unless something dramatic changes, this appeal of an embarrassing defeat for the DOJ looks more like political posturing than an existential threat.

For one thing, the DOJ has said nothing about what it will argue in its appeal. And the fact is, building a case will be tough. U.S. District Judge Richard Leon’s decision to allow the merger was hardly a surprise. The government hasn’t moved against vertical mergers in decades, and Leon was pretty adamant that the DOJ had failed to prove a reduction in competition or consumer harm from the merger of big media distribution (AT&T) and big content (Time Warner).

The DOJ will now have to argue that the judge made significant errors that would force a reconsideration. While that’s always possible, there has been no evidence of it so far. Also, the government failed to ask for a stay on the ruling, and the appeal will be based on the fact pattern from the case itself.

Second, there’s the timing. The filing came a month after the decision and the deal closing. Antitrust cases don’t come along every day, appeals are even rarer, and the government is usually very wary of ripping apart a merger that has already closed.

AT&T has already begun to integrate the two companies, changing names, shuffling personnel, and adopting strategies. An appeal could take months, and every passing week will deepen that integration—and increase the costs of tearing it up again.

Third, a considerable amount of mergers-and-acquisitions activity in media has been swirling around in the wake of AT&T–Time Warner. Walt
Disney
(DIS) has been battling
Comcast
(CMCSA) over
21st Century Fox
(FOXA). (Barron’s parent company, News Corp [NWSA], shares common ownership with Fox.) Disney’s proposed purchase of Fox assets was quickly approved by the DOJ, raising the question of what the agency thinks is kosher in media consolidation. On top of that, investors have been making big bets on all these situations. To reset the table by unspooling the AT&T deal would no doubt set off a wave of shareholder litigation.

Lastly, the appeal will go to the U.S. Court of Appeals for the District of Columbia, which has leaned conservative in recent years—in the sense of arguing for antitrust restraint and for allowing markets to determine the fate of M&A deals. (One of its judges is Brett Kavanaugh, President Donald Trump’s nominee for the Supreme Court.)

It’s possible the case could end up at the Supreme Court. That, of course, would mean that the two companies would have even more time to knit themselves together. But all of that is very unlikely. The Supreme Court in recent decades has not shown much interest in antitrust cases, and it’s not likely to tackle this one.

Given all of that, why this so-far-phantom appeal? The DOJ may be eager to reverse a stinging defeat. But it’s hard not to see the possible hand of the president in this. Donald Trump has long tweeted against the deal, focusing his ire on Time Warner’s CNN. The continuing attempt to break up the AT&T deal might be interpreted as a reasonable reaction against increasing media power and size, except for the fact that Disney is also getting a lot larger with Fox assets.

The only other conclusion is that this appeal is yet another symbolic threat to show how tough the administration can act, and to serve as a warning to other corporations to toe the line.

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